1. How much rent do you pay per month during the academic year? (Enter DK if you don’t know.)

2. A profit maximizing firm has fixed costs of $100, variable costs of $20 per unit and capacity of 10. The price of output is $15. In the short run, how many units should it sell? 1.0 2.6 and 2/3 3.10 4.4 5.20

3. A profit maximizing firm has fixed costs of $100, variable costs of $20 per unit and capacity of 10. The price of output is $25. In the short run, how many units should it sell? 1.0 2.8 3.10 4.5 5.20

4. A profit maximizing firm has fixed costs of $100, variable costs of $20 per unit and capacity of 10. In the long run, the firm can escape its fixed costs by shutting down. What is the lowest price at which it would stay in business in the long run? 1.$20 2.$25 3.$30 4.$100 5.$120

5. Why is this? If the firm operates at full capacity, its total costs will be $300=$100+$20x10. Its average costs will be $30=$300/10. It will want to shut down if price is less than average cost. It will be better off staying in business than shutting down if price is greater than average cost.

6. And on to our lecture…